MEMORANDUM & ORDER
Plaintiff Adrienne M. Lefkowitz originally commenced this
action against her mother Irene B. Marsh to recover death
benefits from two defined benefit pension plans (collectively
"the Plans") adopted by two foreign companies, Arcadia Trading
Company Limited ("Arcadia") and Bay Novelty and Inspection
Company Limited ("Bay Novelty") in which her father Nicholas V.
Marsh was the sole participant, naming Lefkowitz as the sole
beneficiary. By Order to Show Cause and petition dated February
23, 1990, Mrs. Marsh commenced a turnover proceeding in
Estate of Nicholas V. Marsh, File no. 1980/88,
Surrogate's Court, New York County, seeking payment of death
benefits on account of her late husband's participation in the
two Plans during his life.*fn1 On March 14, 1990, Lefkowitz
removed that proceeding to this court where it was assigned
civil docket number 90 Civ. 1716 and Mrs. Marsh promptly moved
to remand the action back to the Surrogate's Court. Mrs. Marsh
died on May 13, 1990, three days before my decision was
rendered retaining jurisdiction and denying her motion to
remand. After Mrs. Marsh died, I allowed The Bank of New York
to be named as preliminary Executor of the Estate of Irene B.
Marsh and it was substituted as the proper party defendant in
place of Mrs. Marsh ("Estate of Marsh").
In the interim, on April 6, 1990, Lefkowitz filed the instant
complaint with this court, which added certain parties not
named and/or properly served in the previous case. I accepted
this complaint, 90 Civ. 2373, as related to 90 Civ. 1716, but
the cases were never consolidated. In this latest action,
Lefkowitz seeks the same benefits as sought by the Estate of
Mrs. Marsh. The parties now cross-move pursuant to Fed.R.Civ.P.
56 for summary judgment.*fn2 Additionally, Lefkowitz seeks a
declaratory judgment on the applicability of the Employee
Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001-1461
to the two foreign corporate benefits plans at
STATEMENT OF FACTS
Arcadia and Bay Novelty are corporations which were organized
and have at all times existed under the laws of HongKong.
Neither corporation does business in, nor pays taxes to, the
United States. Arcadia established the Arcadia Trading Company
Ltd. Defined Benefit Pension Plan (the "Arcadia Plan") and Bay
Novelty established the Bay Novelty and Inspection Co. Defined
Benefit Pension Plan (the "Bay Plan"). Provisions and terms of
the Plans are identical. Contemporaneously with the
establishment of the Plans, Arcadia and Bay Novelty entered
into an agreement creating the Arcadia Trading Company Ltd.
Pension Trust (the "Trust"), the purpose of which was,
inter alia, to administer the trust fund to which
Arcadia and Bay Novelty made the contributions necessary to
fund the Plans in accordance with the United States Tax
laws.*fn4 Lefkowitz Motion, Exh. 6. Mr. Marsh, an American
citizen and resident, was an employee of both Arcadia and Bay
Novelty for the entire time that the Plans were in existence;
he was the sole participant in each of the Plans.
The Plans properly filed a Form 5300, an Application for
Determination for Defined Benefit Plan, with the United States
Internal Revenue Service ("IRS"), seeking determinations that
the Plans as drafted met the requirements of the Internal
Revenue Code ("IRC"), 26 U.S.C. § 401 entitled Qualified
Pension, Profit-Sharing, and Stock Bonus Plans, and § 501
entitled Exception from Tax on Corporations, Certain Trusts,
etc. Subsequently, the IRS issued such determination letters
for tax qualification to each of the Plans. Lefkowitz Motion,
On May 26, 1983, Mr. and Mrs. Marsh executed mutual wills.
Concurrently, they entered into a separate written agreement
("the Agreement"), pursuant to which neither one would "revoke
his or her Will" or "execute a new Will, a Codicil or a trust
agreement disposing of his or her property at death. . . ."
Lefkowitz Motion, Exh. 14.
Each of the Plans had filed with the IRS a Notice of Intent
to Terminate as of December 31, 1984. Lefkowitz Motion, Exh. 9.
For tax purposes, "termination" of the Plans was deemed
effective by the IRS as of December 31, 1984 and the IRS found
no adverse effects from such termination on the Plans qualified
tax status. Lefkowitz Motion, Exh. 10.
In May 1986, Mr. Marsh suffered a paralyzing stroke after
which Mrs. Marsh sought to and did bar him from their home.
Mrs. Marsh then commenced a divorce action in January 1987.
Soon after the divorce action was commenced, Mr. Marsh named
Lefkowitz as the beneficiary of the death benefits payable
under each of the Plans. Lefkowitz Motion, Exh. 11. In August
1987, Mr. Marsh commenced his own divorce action against Mrs.
Marsh, claiming abandonment. Lefkowitz Motion, Exh. 27. Mr.
Marsh died on March 15, 1988. At the time of his death, neither
divorce action had been adjudicated but Mrs. Marsh was still
estranged from Mr. Marsh. On May 13, 1990, Mrs. Marsh died. Mr.
and Mrs. Marsh had three adult daughters from that marriage,
one of whom is Lefkowitz. Mr. Marsh had been estranged from
another daughter for ten years prior to his death and from the
third daughter from 1983 to 1986.
The gravamen of Lefkowitz's complaint is her claimed
entitlement to be designated the proper and lawful beneficiary
of death benefits accrued by her father from the Arcadia and
Bay Novelty Plans, under
which he was a sole participant. The Estate of Marsh, however,
claims that, "pursuant to the Internal Revenue Code and other
federal statutes," Mrs. Marsh was entitled to a certain spousal
benefit entitled the qualified pre-retirement survivor annuity
("QPSA")*fn5 from the two Plans and that Mr. Marsh's purported
designation of Lefkowitz, as a new beneficiary, was invalid. As
such, the Estate of Marsh seeks to set aside the existing
Lefkowitz designation and obtain QPSA benefits based on the
application of Title I of ERISA.
After successfully removing this case from the Surrogate's
Court, Lefkowitz now avers that the Plans at bar are not under
the purview of ERISA for, although having a qualified tax
status under the Internal Revenue Code, they are plans in
foreign corporations not subject to the Labor sections of
ERISA.*fn6 Lefkowitz acknowledges, however, that these Plans
would be subject to regulation under ERISA if they were Plans
set up and/or run in the United States pursuant to
29 U.S.C. § 1001-1461.*fn7
Employee benefit plans are subject to ERISA if they are
established or maintained "by any employer engaged in commerce
or in any industry or activity affecting commerce."
29 U.S.C. § 1003(a)(1). Certain plans, however, are exempt from
ERISA, under Section 4(b) of Title I,
29 U.S.C. § 1003(b)(4). That section provides a limited exemption for a
plan "maintained outside of the United States primarily for the
benefit of persons substantially all of whom are nonresident
aliens." There is no dispute that Mr. Marsh was a citizen of
the United States, the Plans sought and obtained determinations
from the IRS as to their "qualified status," the Plans were
amended from time to time to remain qualified under the Tax
Code, and Mr. Marsh was the sole participant and trustee of the
Plans. Thus, the exemption clearly does not apply in the
Not only was the sole participant in the Plans a United
States citizen, but Mr. Marsh availed himself of all of the
concomitant ERISA tax benefits pursuant to Title II of the IRC.
Indeed, if the Plans were not qualified plans, contributions to
the Plans on behalf of Mr. Marsh would have been included in
his gross income for the years in which contributions were
made. Arcadia and Bay Novelty along with Marsh availed
themselves of all of the privileges under the Internal Revenue
Code. To claim, that a pension plan can selectively avail
itself of the tax benefits of a qualified pension plan set
forth in Title II, and yet not be subject to the rest of ERISA,
primarily designed to protect the rights of employees to their
benefits, is illogical and not supported by the submissions in
this case. Clearly ERISA applies to the Plans at bar and
jurisdiction is vested in this court pursuant to
29 U.S.C. § 1132(a)(3).
Considering that the Plans are governed by ERISA, Lefkowitz
next claims that she is entitled to the death benefits
without having to give up a spousal annuity to Mrs. Marsh's
estate, principally because the Plans were never formally
amended to adopt the QPSA provisions pursuant to 29 U.S.C. § 1055.
This, Lefkowitz maintains, is significant because
the Plans were amended periodically to remain tax qualified,
yet they were never amended to provide a spousal annuity. The
Arcadia and Bay Novelty Plans, however, remained in compliance
with the IRC and its separate spousal provisions. Specifically,
the Tax Code, in pertinent part states:
In the case of any plan to which this paragraph
applies, except as provided in section 417, a
trust forming part of such plan shall not
constitute a qualified trust under this section
(i) in the case of a vested participant who does
not die before the annuity starting date, the
accrued benefit payable to such participant is
provided in the form of a qualified joint and
survivor annuity, ["QJSA"]*fn8 and (ii) in the
case of a vested participant who dies before the
annuity starting date and who has a surviving
spouse, a qualified preretirement survivor annuity
is provided to the surviving spouse of such
26 U.S.C. § 401(a)(11).
The advent of mandatory spousal annuities or QPSAs derive
from and were instituted as part of an overall scheme under the
Retirement Equity Act of 1984, ("REA") of 1984, P.L. 98-397
which was signed into law on August 24th of that year. Among
other things, it amended various portions of ERISA. In
particular, the REA mandated automatic payment of survivor
benefits, or a QPSA, to the surviving spouse of a participant
vested in a pension plan prior to retirement and/or death.
Specifically, ERISA as amended by the REA, provides: "in the
case of a vested participant who dies before the annuity
starting date and who has a surviving spouse, a qualified
preretirement survivor annuity shall be provided to the
surviving spouse of such participant."*fn9
29 U.S.C. § 1055(a)(2); 26 U.S.C. § 401(a) and 417. According to
Lefkowitz, because the REA's effective date succeeded the
termination of the Arcadia and Bay Novelty Plans, no QPSA
provision can be read into these Plans now.
Lefkowitz further maintains that the Plans, as drafted and as
in existence until their respective terminations, always
provided: "`Beneficiary' shall mean: (a) the last person . . .
designated as Beneficiary by the Participant. . . ." Lefkowitz
Memo., Exh. 4, Art. I, ¶ 1.6. There is no dispute that Mr.
Marsh designated Lefkowitz the last beneficiary within the
meaning of the Plans.*fn10 However, after the REA's effective
date, a QPSA was automatically payable on the first day of the
subsequent new plan year unless the participant's spouse
consented in writing to waive the election to receive such
benefits. 26 U.S.C. § 417(a)(2);
29 U.S.C. § 1055(c)(1). The REA was thus effective for plan years beginning
after December 31, 1984. The Arcadia and Bay Novelty Plans'
"new plan year," subsequent to the enactment of the REA
commenced on March 1, 1985.
A transitional rule contained in REA § 303(c)(2) applies
where a participant dies after the date of enactment of REA but
before the plans have been amended to conform to the REA.
Although the statute reads that the rule applies to those
who die "before the first day of the first plan year to which
the amendments made by this Act apply," in most cases a plan
would be retroactively amended to the first day of such plan,
so that the REA amendments would be taken into account without
the need for the transitional rule. In cases such as this one,
where the plans were not properly amended to take into account
the REA changes, the transitional rule is needed to protect a
surviving spouse. The transitional rules provide that if a
participant died in the period between the effective date of
the amendments and the adoption of the amendments by the plan,
the amendments "shall be treated as in effect as of the time of
such participant's death." Pub.L. No. 98-397, Title III,
Section 303(c); see Lucaskevge v. Mollenberg, 11
E.B.C. 1355, 1989 WL 83197 (W.D.N.Y. 1989) ("transitional rules
provided that the amendments made by the REA were to take
effect immediately (August 23, 1984) even though plans were not
required to adopt them until the beginning of plan years
commencing after December 31, 1984.") Because the Plans at bar
were not effectively terminated on December 31, 1984, I read
the QPSA provisions into the Plans via the REA and its
Lefkowitz maintains, however, that she would be divested of
a vested interest in the Plans as Mr. Marsh's beneficiary if
her designation was considered void by the REA. Moreover, she
maintains that the REA has no application to this case because
the Plans terminated on December 31, 1984. Thus, Lefkowitz
asserts, the transitional rules are of no assistance for they
became applicable on the first day of the Plan year after the
REA was signed into law, which was not until March 1, 1985,
well after the Plans were terminated.
Even if the Plans were not effectively terminated on December
31, 1984, Lefkowitz avers the Plans were never amended to
include the QPSA provisions between the passage of the REA and
Mr. Marsh's death over four years later. She contends that the
corporations' failure to amend their plans was fatal and that
retroactively applying the REA at such late a date is
Specifically, Lefkowitz argues that the purpose of the
transitional rule was to insure that a very small class of
persons, namely the spouses of participants who died before
their annuity starting dates and between the passage of the REA
and its effective date, were not deprived of QPSA's. She states
that Mrs. Marsh does not fall into this protected category.
Lefkowitz further claims that the transitional rule is neither
a blanket acceleration of the effective date of the REA nor
does it provide for coverage of participants who died prior to
the time their plans were amended. As such, retroactive
application of the REA to mandate Lefkowitz's divestment is not
what the statute intended. Indeed, prior to the REA, a
beneficiary other than a spouse could be named without having
to be divested of a QPSA payment, except if otherwise provided
by the Plans. As such, Lefkowitz avers that Mr. Marsh did not
die within the window period described in the REA, §
303(c)(2)(C), because the REA never became effective with
respect to the plans herein. I disagree.
It is undisputed that the Plans at bar were not amended prior
to Mr. Marsh's death, and thus did not reflect the changes made
by the REA, and that the decedent died after the effective date
of the REA. However, the REA included a transitional rule to
provide immediate relief between August 24, 1984, when the
statute was enacted, and the time that pension plan is amended
in accordance with the REA. Pub.L. No. 98-397, Title III,
Section 303(c), 98 Stat. 1452 (1984). Thus, the transitional
rule allowing for retroactive application of the REA applies
where a participant of a pension benefit plan dies after the
date of the REA but before the participant's plan was amended.
Lucaskevge v. Mollenberg, 11 E.B.C. 1355, 1989 WL
83197 (W.D.N.Y. 1989). The Estate of Marsh correctly asserts
that even though the Plans at bar were terminated effective
December 31, 1984, the Trust continued in existence without Mr.
Marsh ever having retired prior to his death. As such, the
Trust continued in existence past 1984 and was tax qualified.
Because of the self-executing nature of the Code, Mr. Marsh
could not designate Lefkowitz as his beneficiary in 1987
without Mrs. Marsh's consent.*fn12 Since the Arcadia and Bay
Novelty Plans were never amended in accordance with the REA and
Marsh died after the plans' effective date, the transitional
rule should govern the question of the proper beneficiary. As
such, under the REA the Estate of Marsh is entitled to QPSAs
from the Arcadia and Bay Novelty Plans because Mrs. Marsh never
executed a consensual spousal waiver indicating otherwise.
See 29 U.S.C. § 1055(c)(1) and (c)(2).
Indeed, the spousal consent provision of the REA applies to
the Plans even though contributions to the Plans were
terminated as of December 31, 1984. On April 11, 1986, the IRS
issued a favorable determination letter regarding the
contemplated termination of the Arcadia Plan and ruled that the
proposed termination would not result in disqualification.
However attached to that letter, the IRS set forth numerous
caveats, including the IRS's position that "This letter does
not apply to any provision" of the REA. See Bramson
Affid., Exh. K. Similarly, the Bank of New York acknowledges
that on October 8, 1986, the IRS issued a favorable
determination letter as to the termination of the Bay Novelty
Plan, but an attachment to the letter of the same date sets
forth numerous caveats, including the IRS's position that:
"This determination does not express an opinion as to whether
your plan satisfies the provisions" of the REA. See
Bramson Affid., Exh. L.
Nonetheless, Lefkowitz ardently claims that because the IRS
was contacted with regard to terminating the Arcadia and Bay
Novelty Plans as of December 31, 1984, that the Plans'
termination affects the spousal consent rules pursuant to the
REA. With regard to whether the two Plans here were terminated
for the purpose of determining applicability of the REA, the
Treasury Department has provided guidance as to the application
of the spousal consent rules under the REA to "terminated"
benefits provided under a plan that is subject to
the survivor annuity requirements sections of
401(a)(11) and 417 must be provided in accordance
with those requirements even if the plan is frozen
or terminated. However, any plan that has a
termination date prior to September 17, 1985, and
that distributed all remaining assets as soon
as administratively feasible after that date,
is not subject to the survivor annuity
Treasury Reg. § 1.401(a)-20 (emphasis supplied).